Centrica Opts Out of Building U.K. Nuclear Plants on Costs

By Nidaa Bakhsh -
Feb 4, 2013

Centrica Plc (CNA), the U.K.’s largest
household energy supplier, opted out of a plan to build nuclear
reactors in the U.K. with Electricite de France SA because of
rising costs and will return 500 million pounds ($786 million)
to investors by buying back shares.

Centrica, which had an option to take a 20 percent stake in
four new reactors at two of EDF’s power stations, said it
decided not to participate because the project is likely to cost
more than originally planned and take longer than expected.

“These factors, in particular the lengthening time frame
for a return on the capital invested, have led to conclude
participation is not right for Centrica,” Sam Laidlaw, chief
executive officer of the Windsor, England-based company, said
today in a statement.

Centrica’s exit leaves EDF without an investor to share the
cost of reactors at Hinkley Point in Somerset and Sizewell in
Suffolk. The decision comes as EDF and the government negotiate
how much the Paris-based company, which said last month it’s
talked to a Chinese company about investing, will get for power
generated at the new reactors. The U.K. wants the plants to
replace existing units and cut fossil-fuel emissions. German
utilities EON AG (EOAN) and RWE AG (RWE) scrapped a British project last
year, saying they couldn’t justify the capital expenditure.

Centrica fell 1.2 percent to 349 pence at the close in
London trading, valuing the company at 18 billion pounds.

Write Off

The U.K. company will write off about 200 million pounds it
spent on advanced costs for the project, Laidlaw said on a
conference call. The company will focus on investing in natural
gas production in the North Sea and North America, he said. Its
20 percent share in eight existing nuclear plants in the U.K. is
unaffected by today’s decision, he said.

“Centrica is more concerned about the timing of the
returns than the costs,” John Musk, an analyst at RBC Capital
Markets in London, said by phone. “It will require a 7 billion-
pound outward payment to develop it over five to seven years,
and then it won’t start to make positive cash-flows until the
power station starts.”

Planning Decision

A planning decision from the secretary of state for the
Hinkley Point project is expected in the “coming weeks,” EDF
said today in a statement. The company is in discussions to
agree a price for output from the site, which will be key to
attracting an investor, said Vincent de Rivaz, chief executive
officer of EDF Energy.

“I very much expect EDF to press ahead and to look to do
that alongside a partner rather than take on board all of the
risk of that investment themselves,” Musk said.

The cost of a new generation of reactors may reach 60
billion pounds if all proposed plants get built, according to
the U.K.’s Nuclear Advanced Manufacturing Research Centre.

“The decision by Centrica reflects the company’s
investment priorities and is not a reflection on U.K. government
policy,” the Department of Energy and Climate Change said in an
e-mailed note. “We are determined to make the U.K. a leading
global destination for investment in new nuclear, which will
play a key role in our future energy mix.”